Can Asean Create a Trade Bloc to Rival China and India?

Roshan Vaswani|Senior Producer, CNBC Asia Pacific

Monday, 21 Nov 2011 | 1:46 AM ETCNBC.com

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Leaders of Southeast Asian countries are meeting in Bali, Indonesia, this week to try to push for the creation of a free trade zone by 2015 that would rival China and India. But while businesses are hopeful a deal can be done, experts point out the group faces numerous challenges to make the plan a reality.

Trade

The 10 countries of the Association of South East Asian Nations are home to more than 600 million people and have a combined gross domestic product (GDP) of $1.8 trillion.

But according to Standard Chartered, the diversity of these economies and their varying political structures are likely to slow the pace of integration.

"When the European Union was formed in 1992, the richest member had a GDP per capita 4 times that of the poorest. However, in Asean today, Singapore's GDP per capita is 36 times of Vietnam's," Tai Hui, Regional Head of Research at the bank, told CNBC.

Unlike the members of the EU, which were all democratic nations, Asean countries have varying levels of political freedom such as a junta in Myanmar and a monarchy in Brunei.

Some analysts also question whether the region can truly rival China and India in size and importance. Alexander Feldman, President of the U.S.-Asean Business Council, says the region should instead put itself forward as a partner to these Asian giants, given that it's nestled between the two BRIC countries.

Feldman also says that with tariff barriers coming down, Asean will not only become a stepping off point for the 600 million people who make up the region but also for countries who have free trade agreements with the grouping.

The Asean-China Free Trade Area was launched on January 1, 2010. Since then China has already become the group's largest trading partner. Later this year, India is due to sign a free trade agreement with Asean.

For businesses operating in Asean, a free trade zone will be a big boon. "It is a lot easier to sell an integrated region than it is 10 different countries... we invest on a basis of Asean as a region," Stuart Dean, President of GE Asean, told CNBC.